EPAct 179D Experts

"The least expensive kilowatt, is the one not used."

- Jacob Goldman

The EPAct Tax Aspects of Natural Gas System Implementation

Natural-Gas-System

Conversions from oil to natural gas are at
a tipping point. Over the past decade, the combination
of hydraulic fracturing and horizontal drilling technology has
allowed access to enormous quantities of natural gas from
shale formations. As a result, in 2013, the U.S.
became the world’s largest producer of hydrocarbons, producing
more petroleum and natural gas than both Russia and Saudi
Arabia, the second and third largest producers in the world.

This development has and
will likely continue to have significant consequences for the
natural gas industry. The availability of abundant, low
cost natural gas means many consumers will see an opportunity
to take advantage of competitive prices, which could remain
low for a very long time.

As demonstrated in the
chart, in the electric power sector, which is the largest
consumer of natural gas, utilities are using natural gas
to generate electricity virtually matching that of coal.
In addition, the lower greenhouse gas emissions associated
with natural gas may spur demand for the natural gas
alternative in part because greenhouse gas regulations for
power plants are becoming increasingly stringent.

In addition to natural
gas consuming market share from other energy sectors, the
demand for energy products overall is expected to rise
significantly in the upcoming years. The Energy
Information Administration, in its Annual Energy Outlook,
projects total energy consumption to increase by 20% by 2035.

Recognizing the growing
demand for energy, more specifically, clean energy, some large
energy producers are developing novel solutions to keep up
with this demand. In New York, National Grid, in partnership
with the New York City Department of Environmental Protection,
recently announced the launch of a wastewater treatment plant
in Brooklyn, NY which will produce natural gas.

Novel solutions are also
being developed to address other issues in the natural gas
industry. As demand for the cheaper and cleaner
alternatives grows, the capacity of infrastructure that is
needed to support either conversions or new installations of
natural gas systems must be increased proportionately.

Installation of new
underground infrastructure, however, is both costly and
challenging since many urban areas already have a complex
network of above and below ground infrastructure that is
difficult to work around. In response to this conundrum,
the current national strategy involves not only the
installation of significant pipe infrastructure, but also a
higher utilization of existing natural gas pipeline. This
would involve novel techniques such as completing the
successful expansion of pipes already underground without
having to dig them up.

Another novel solution
being developed by National Grid involves connecting existing
distribution systems in Queens and Brooklyn in order to
increase the capacity of the existing network and the
reliability of supply points. Other innovations include
new pipe repair and replacement technologies and novel methods
for integrating large scale conversions.

Buildings converting to
natural gas, as well as making other energy efficient HVAC,
lighting, and building envelope improvements may qualify for
EPAct 179D tax deductions.

The EPAct Tax
Opportunities

Pursuant to Energy Policy Act (EPAct)
Section 179D, property owners making qualifying
energy-reducing investments in their new or existing locations
can obtain immediate tax deductions of up to $1.80 per square
foot.

If the building project
doesn't qualify for the maximum EPAct $1.80 per square foot
immediate tax deduction, there are tax deductions of up to
$0.60 per square foot for each of the three major building
subsystems: lighting, HVAC (heating, ventilating, and air
conditioning), and the building envelope. The building
envelope is every item on the building’s exterior perimeter
that touches the outside world including roof, walls,
insulation, doors, windows and foundation.

Newtown Creek
Wastewater Treatment Plant

As part of National Grid’s commitment to
sustainable energy solutions, they recently began the design
and construction phase for a new purification plant in
Brooklyn, NY that will convert biogas byproducts from the
Newtown Creek Wastewater Treatment Facility into natural
gas. Newtown Creek is the largest wastewater treatment
facility in New York City. The plant produces over 500
million cubic feet of biogas annually, a byproduct which is
mostly methane (the main component of natural gas). The
amount of byproduct produced by the facility is expected to be
enough to produce the amount of natural gas needed to power
over 2,500 Brooklyn residences.

In addition, the project
will reduce CO2 emissions by 16,000 tons annually, the
equivalent of taking 3,000 cars off the road.

The project is the first
of its kind and involves a number of technological challenges
and hurdles. “Developing renewable biogas at Newtown
Creek will serve as a blueprint for the type of
transformative, sector-crossing projects needed to improve our
air emissions and meet our greenhouse gas reduction targets,”
said Sergej Mahnovski, Director of the Mayor’s Office of Long
Term Planning and Sustainability. “The projects will
also act as a catalyst for developing new markets and
technology for the resources recovered, both in New York City
and elsewhere.” Those resources can be quite
substantial. Energy generated at U.S. wastewater
treatment plants (WWTPs) could potentially meet 12% of the
national electricity demand, according to the National
Association of Clean Water Agencies.

Other public officials
had similar comments to about the initiative. “Through this
creative public/private partnership, the City of New York,
National Grid, and Wastewater Management have demonstrated
what a pathway to greater grid efficiency and reliability can
look like” said Richard Kauffman, Chairman of Energy and
Finance for New York State. “Innovative local solutions like
this will be critical to ensuring that communities receive the
clean power they need and deserve.”

Wastewater Treatment
Process

The technology most commonly used to turn
wastewater into a renewable fuel source is called anaerobic
digestion. Essentially, microorganisms break down the
organic material in wastewater in an oxygen-free
environment. The process yields “biogas” consisting
mainly of methane and carbon dioxide. This methane can be
combusted to produce electricity as well as compressed natural
gas (CNG).

Although the technology
has been around for some time, many innovators in the industry
are trying to move it forward. Cleveland-based Quasar
Energy Group is currently involved in a collaborative effort
with the Ohio Agricultural Research and Development Center at
Ohio State University. The partnership is developing
technology that will hopefully be adopted by older municipal
wastewater treatment plants in the U.S. that are in need of
upgrades. The technology couples Quasar’s liquid anaerobic
digestion technology with solid-state anaerobic digestion to
increase energy outputs, expand the feedstock base, and
broaden the market application for the system.

Other innovations
include the developments of MIT spinoff, Cambrian Innovation
in Boston. Their EcoVolt product uses electrically active
organisms to produce both electricity and heat while treating
wastewater. The treatment that takes place in the
EcoVolt reactor is enhanced by a process called
electromethanogenesis.

With this novel
approach, electrodes are coated with electrically active
microbes that convert organic wastewater pollutants into
electricity. The electricity is then sent to other electrodes
coated with different microorganisms, which inevitably convert
the electricity, ambient protons and carbon dioxide into
methane.

National Grid
Brooklyn/Queens Interconnect

National Grid recently began construction
on the Brooklyn/Queens Interconnect initiative. When
completed, it will connect the company’s existing distribution
systems in Brooklyn and Queens. This cross county
capability is expected to provide reliability, safety, and
flexibility to the existing infrastructure as it currently
stands in both counties.

The plan involves
installing 1.6 miles of 26-inch and 12-inch coated steel
pipeline underneath the Rockaway Inlet beginning at Beach
169th Street in the Rockaways, and ending at the intersection
of Flatbush Avenue and Aviation Road in Brooklyn.

The new 12-inch pipeline
will connect National Grid’s existing distribution systems in
Brooklyn and Queens and provide a back-feed for both areas to
ensure adequate natural gas supplies for the Rockaways.
The 26-inch pipeline will connect to the Williams Transco
proposed Rockaway Delivery Lateral Project, which will provide
a needed additional natural gas delivery point for New York
City from the existing Transco system.

Williams’ existing
Transco pipeline is a major transporter of natural gas,
delivering much of the natural gas consumed in the Northeast,
extending from Texas to New York City. This new access
point to the Transco pipeline system will provide much needed
service and reliability to the New York City area.

The $83 million project
will be the first major pipeline to be installed in the area
in 50 years and is expected to lead to more conversions to
natural gas. “We are investing heavily in our gas
infrastructure to ensure reliability, safety and to connect
our customers" said Ken Daly, president of National Grid New
York. "This project is critical to provide the additional
clean economical natural gas supplies that our customers
need”.

Large Scale Natural
Gas Conversions

The Village of East Hills on Long Island is
part of a first-in-kind initiative to provide a large portion
of residents in the village access to natural gas lines.
The new project is expected to save residents hundreds and
perhaps thousands of dollars per home that would otherwise be
spent on running gas lines to their residence.

The project is part of a
partnership between the village of East Hills and National
Grid. Through the new program, approximately 1,000 homeowners
in East Hills will be able to convert to gas without a charge
for extending the gas lines. Senator Martins, praised
the efforts saying “This is an innovative clean energy
program, whereby our installation of 60,000 feet of new,
modern gas mains will provide over 1,000 customers access to
clean natural gas ... Long Island communities will benefit
from cleaner air as this program has the equivalent impact to
the environment of taking 15,000 cars off the road for a
year.” Many people see this as a model of how the
government and private sector should work together to provide
access to natural gas lines on a national scale.

Conclusion

Given the low natural gas prices and
increasingly stringent air pollution requirements, natural gas
conversions are becoming more prevalent. Those making
the upgrade from oil to natural gas should be aware of the
EPAct 179D tax deductions available for these upgrades and
other lighting, HVAC, and building envelope improvements.